Here’s one for the Freakonomics guys: Why aren’t Japan’s drum-tight labour markets leading to higher wages and inflation?

When Prime Minister Shinzo Abe embarked on one of modern history’s most audacious economic revival efforts, conventional wisdom held that Japan’s sub-4 per cent unemployment (it’s now 3.3 per cent) would aid the cause. Labour scarcity should in theory force Japan’s cash-rich companies to raise wages, at least according to what economists call NAIRU, the non- accelerating inflation rate of unemployment. Well, 31 months into Abenomics, Japan has blown that theory all to hell.

Pay adjusted for inflation hasn’t risen for 25 months, while household spending has dropped in 14 of the past 15 months, down 2 per cent from a year earlier in June alone. Consumer prices excluding fresh food are essentially flat, up just 0.1 per cent in June, despite the Bank of Japan’s titanic stimulus programme and the lowest productivity among the Group of Seven nations.

What gives? Dismal demographics deserve some of the blame. An ageing and declining population robs the BOJ of the cyclical jump in inflation it’s trying to engineer. But the real problem is government timidity. Consider this: To help boost wages, Abe’s team last week suggested that companies raise the minimum hourly wage by all of 18 yen. It’s currently 780 yen, or about US$6.30.

On July 29, Abe’s chief cabinet secretary, Yoshihide Suga, declared that Japan needed "bold"’ pay hikes to stimulate growth and endorsed the 18-yen boost. With the current hourly wage about enough to buy a beer at a run-of-the-mill pub, the increase would only buy another after more than 43 hours on the job.

It’s going to take a lot more than that to prod companies to hike wages. Clearly, Abe bet badly on Japan Inc.’s willingness to share the spoils of the yen’s 35 per cent plunge since late 2012. Corporate chieftains, who are sitting on roughly $2 trillion of cash, have continued to hoard earnings for 26 straight quarters now. Capital expenditure, meanwhile, remains below levels seen before the 2008 global crisis.

This isn’t just greed. Companies are waiting for Abe to implement the supply-side reforms needed to hasten growth in the years ahead. Ironically, in many areas, Abe hasn’t shied away from daring and controversial policies: reintepreting the pacifist constitution to expand Japan’s military role; passing a state-secrets law that could put journalists and whistleblowers in jail; raising sales taxes amid deflation. Joining the US- led Trans-Pacific Partnership talks pits Abe’s Liberal Democratic Party against the farmers on which it relies for support.

But when it comes to the really important structural reforms needed to enliven growth -- loosening labour markets, reducing regulations, encouraging startups, empowering women, developing a new energy policy -- Abe has been a study in hesitancy.

This lack of urgency is dimming Japan’s outlook. The International Monetary Fund warns that by 2018, growth could be even weaker than during the darkest years of Japan’s deflation era (2000-2012). Expectations for 0.65 per cent growth from 2018 to 2020 mean Tokyo’s plan to grow its way out of the world’s biggest debt budget will require serious revision. Japan may have contracted in the second quarter.

Even Abe’s successes require asterisks. The weak yen, for example, is hurting small companies as import costs skyrocket. Worthy efforts to tighten corporate governance are faltering in implementation.

To regain momentum, Abe needs to tap into the audacity he’s displayed elsewhere. Giving his structural upgrades a reboot would offer companies such as Toyota and Sony a reason to boost wages far more than 18 yen an hour. At the same time, Abe should be calling executives on their stinginess -- publicly naming and shaming them. What’s more, he should tax excessive cash hoards and offer incentives to companies that convert low-paid part- time workers to full-time status.

After all, the more companies invest in workers, increased productivity and new markets, the quicker Japan will grow and the fatter their profits will be. Abe has spent 31 months waiting for CEOs to do the right thing. It’s time to put them, and Japan’s tight labour markets, to work.